Types of Losses

Capital Losses

Allowable capital losses (½ of the total loss) can only be used to offset taxable capital gains. If losses for the year are greater than gains, the excess cannot be applied against other taxable income. Net capital losses can only be applied against net taxable capital gains in any of the three previous years, or they can be carried forward indefinitely to offset future net capital gains. However, capital losses arising on transfers to a registered plan and superficial losses may not be applied against capital gains at all.

Loss denied on transfers to an RRSP/RRIF

When you sell or transfer securities to your self-directed RRSP, RRIF, or a spousal RRSP, the loss cannot be claimed. However, gains must be recognized. Losses incurred within a registered plan provide no benefit to you for tax purposes.

Superficial losses denied

Superficial losses cannot be deducted against gains. If you sell a security to trigger a loss and you or an affiliated person (for example, your spouse, a corporation you control, or a trust where you have a major beneficial interest, including an RRSP) purchases an identical security within 30 calendar days before or after the sale date and still holds it 30 days after the sale date, then the capital loss is denied to you and added to the cost base of the person who bought it. This rule also applies if you or the affiliated person buys an option or right to buy the security sold.

Typically superficial losses are encountered in tax loss selling situations. The law requires CRA to act as if the sale was for investment purposes and not tax purposes as long as the 30-day rule is respected.

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